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Rolls-Royce share price takes off, despite profit fall

British aerospace engineer Rolls-Royce Holdings Plc’s share price has surged more than 14% despite an 80% fall in pre-tax profits.

Rolls-Royce, which makes Airbus Group SE’s long-range jetliners and engines for Boeing Co, said underlying pre-tax profit fell 80% to £77 million while reported revenues fell into a loss of £2.15 billion. This was a result of an accounting requirement to value currency at the end of the reporting period.

The falling UK sterling due to the decision to leave the EU left the company nursing a £2.15bn loss on unadjusted basis. The company has also been affected by cancelled orders from oil industry customers due to slowdown in oil price, which resulted in a reduction in aftermarket servicing for aircraft engines.

Rolls-Royce Chief Executive, Warren East, said the turnaround plan was starting to deliver. He said the cost-cutting and simplification plan that was started last November to help Rolls-Royce to cope with difficult trading conditions, was working and would help to boost profit in the second half [1].

Reflecting on share price rise, Hargreaves Lansdown analyst, George Salmon, said: “Sometimes just meeting expectations is good enough, and that has proved the case today with Rolls shares soaring as the company announced it is trading in line with its most recent guidance” [1].

Although Rolls-Royce forecasts higher large-engine deliveries in the second half, it still expects a full-year civil aerospace underlying pre-tax profit to fall below last year’s figure by £550 million.

[1] Reuters – “Rolls-Royce turnaround starts to take hold” – uk.reuters.com